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Frozen Market: Developers Wait While Albany Considers Rent Regulations

L+M Development Partners President of Development and Acquisition David Dishy and Taconic Investment Partners co-CEO Charles Bendit

Anxiety over changes to New York's rent regulation laws this summer are spreading through the commercial real estate industry, with many developers, investors and landlords saying they can only do one thing: wait and see.

“We talk about it every day ... We just stress about it and wonder what's going to happen at two in the morning,” L+M Development Partners Development and Acquisitions President David Dishy said at Bisnow’s Multifamily Annual Conference this week.

With the New York Senate controlled by the Democrats, rent reform is inevitable. There are a number of potential changes upon which the industry is keenly awaiting details, including the elimination of vacancy decontrol — which allows for apartments to be destabilized if the rent hits the luxury deregulation threshold of $2,733 and the unit becomes vacant. Rules that allow landlords to increase rent if they undertake major improvements on units may also be done away with.

“There will be dramatic change, it's a question of how dramatic it will be," Dishy said. "The market is a little bit frozen at the moment."

Taconic Investment Partners co-CEO Charles Bendit said his firm has stopped deploying its workforce housing fund until further notice.

“We have completely shut down any investment for the time being until we figure out what's going on, unless of course there's too good of a deal,” he said. “The expectation that you are going to be able to move ... rents up and make a return on your investment — the change to rent regulations calls all of that into question. I think strategies are going to change, pricing may change.”

Opponents to changes — the Real Estate Board of New York among them — argue that landlords could allow their buildings to fall into disrepair if not incentivized to fix them up, and that the net operating income on rent-regulated buildings will fall if the policies are removed.

“Responsible rent reforms protect tenants and owners,” REBNY President John Banks said in a statement. "Instead, these legislative proposals fail to create a single new affordable unit or improve housing vacancy rates for those households most in need."

B6 Real Estate Advisors CEO Paul Massey, L+M's David Dishy, Taconic's Charles Bendit, Fulcrum Senior Project Manager Andrew Lyons and WinnDevelopment Vice President Meade Curtis

Tenant advocates argue that in New York City — where more than 60,000 people are homeless and 40% of households are considered to be rent burdened — preserving rent-regulated apartments is urgent.

“We need to use all of the tools at our disposal to really solve the affordability and homeless crisis,” Elizabeth Ginsburg, Enterprise Community Partners' senior program officer, told Bisnow last month.

The uncertainty already appears to be playing out in the sales volume figures. There were $3.7B worth of sales across all asset types last quarter in the borough, across some 79 transactions, a 13% dip from 2018, according to Avison Young.

The drop has been attributed to political uncertainty. B6 Real Estate Advisors CEO Paul Massey said there are some buyers who aren’t waiting for clarity.

“Some people want to be early to the show,” he told the audience. “There are those who are watching and waiting ... But there's a whole bunch of folks who are thinking, 'Let's dive in and scale before June.’”

Mead Curtis, vice president at multifamily manager WinnCompanies, said new regulations could bring opportunities.

“How do we pivot, how do we find alternate sources of capital that could find the new regulations attractive?” he said. “So, set up our business in a way that we can pivot with regulation and run towards it, not necessarily away from it.”